Sam Seiden is an experienced stock and futures trader. He also regularly conducts training on trading in financial markets.
Recently I met up with a childhood friend of mine. For years, as brilliant as my career had been, he had insisted that my trading business was nothing more than gambling.
What is the difference between trading and gambling?
Even when trading on news events, he often asked me, what is the difference between trading and gambling. This was a very difficult question for me because I think the question itself is incorrectly posed. Regardless of whether you are TraderWhether you're a casino player, a seller of advertising space on the Internet, a retail store owner, a car dealer, a franchise owner, a street vendor, or someone who buys and sells things on eBay, you are a speculator at some level.
Trader takes market risk in anticipation of potential profits. A casino player risks a 5.00$ chip in the hope of winning 10.00$. An advertiser pays for advertising, hoping to see a much larger return (return) on his investment. The retail store owner buys goods (takes a risk) in hopes of selling those goods to customers at a much higher price.
So, really, the question should be posed as follows: "what type of speculator are you?"
Are you the type who takes risks only when the odds are in your favor, or the type who takes risks when you can "feel right" and "look good"?
I answered my friend simply, "Yes. Trading and gambling are very similar, but with one big difference.
So what's the difference?
Then, I offered him this scenario: "Imagine you're playing blackjack and don't have to bet any money until you see the cards and then you can bet as much as you want, or even not bet at all. If you do bet, you can then take all your money whenever you want. That's what trading is!"
In trading, we have the opportunity to put our hard-earned money at risk only when the odds are well in our favor. Casino players would like to have the same odds as an experienced market speculator.
The problem is that most market speculators cannot understand the difference between risk and opportunity. In fact, most market participants get what they deserve, which is a great opportunity for the astute trader. Beginners constantly fall into the many traps in the market that disguise risk as opportunity. The laws of supply and demand ensure that you will lose after a while if you take the same actions as beginners.
Why can't most market speculators do things right?
In my opinion, a combination of human emotions and just plain laziness are responsible for this. People tend to avoid the hard work required to develop marketable skills in order to get paid by those who do not have such skills.
There is no shortcut. If someone is not interested in doing the hard work required to achieve proper trading skills, then profitable trading opportunities will not come to that person either, because the most profitable opportunities always go to those who like to work hard, not to those who look for easy ways.
If you, as a trader, are risking your trading account on inconsistent random odds, you are probably trying to find a shortcut to trading success. In the world of "compensation," you will get exactly what you deserve after a while.
In everyone's life, sooner or later there is a payment of bills. Your bottom line is ultimately equal to your physical and mental effort. If you're not active enough to develop the necessary skills, your money is likely to go to someone else. Trust me - I've been in this business for years. If there was a shortcut to success in trading, I would have found it.
As you can see, whether you are a trader or a retail store owner or one of the people I mentioned at the beginning of this article, all that really matters is the type of speculator that you are. Those who invest the time and energy necessary to work out strategy based on rules that allow for low-risk, high-profit trades, it just pays those people who don't do it. That's how this world works.